These days, banks are hesitant about lending large amounts of money to new companies. If you walk into a bank, there’s a pretty good chance that you’ll be refused.
So, what do you do if you need financing for a new project or business expansion? Well, you can seek venture capital, but it’s essential to think the decision through because this process demands focus, hard work, and, most importantly, perspective. At any rate, capital is offered in exchange for equity, generally a minority stake. Unless there are no red flags, you’ll receive much-needed funding in no time.
A VC firm won’t agree to meet with an entrepreneur until they have seen their proposal. The investors won’t just hand you the money. Therefore, it’s of paramount importance to put together a good proposal. A proposal is a document or a set of documents that you submit to the organization with the explicit intent of securing funding. Wining funding is one of the most difficult aspects of doing business, meaning that you must overcome any difficulty that you encounter. If you don’t know how to develop a well-written venture investment proposal, please continue writing to get our top tips. You’ll soon have investors falling at your feet.
Before you start writing: Identify your needs and do your due diligence
Don’t rush the venture capital proposal. Take a deep breath, sit down, and take the time to identify your needs. Determine how much money is necessary to get things done. As a rule, entrepreneurs tend to underestimate their needs, rejecting unexpected expenses. Keep in mind that venture money isn’t long-term money. The venture capitalists invest in your balance sheet and infrastructure until they reach a reasonable size and credibility. The right amount of money to ask for depends on several variables like ownership, cash flow management, and supply and demand. Whatever you do, don’t damage your credibility with investors. Be prepared to justify your request.
Identify VC firms that have funded businesses similar to yours. They have much to offer. Look for established organizations that have encountered success in your specific market. Partnering with a VC firm that possesses in-depth industry knowledge will pay off in the end. Needless to say, you have to do some research. The vast majority of venture capitalists list their portfolios on their websites. Nevertheless, don’t hesitate to reach out to your peers. Talk to your startup friends and see if they have any recommendations. Get several points of view before reaching a decision. Many VC firms invest locally, while others are willing to cross borders, going beyond their city and state.
Outline your business proposal and increase your chances of attracting VCs
The business plan demonstrates the prospects for profit. Not only can you show that there are chances of making a profit from your idea, but also highlight your goals and plans for achieving them. You don’t need a business degree to write a winning business proposal. Without further ado, the plan should include a detailed description of the product/service and what unique benefits it presents. Make sure the summary is carefully written, but not too long. As you can imagine, VC firms receive an enormous number of proposals and don’t have time to go through all of them.
Besides a marketplace overview, the business plan should feature a demographic description of the target audience and information about the competition. You can include recent or projected trends in sales, marketing strategies, financial projections, and any support documents. Use independent research to back your statements. If you don’t have such data at hand, it’s recommended to hire an independent research firm. VCs want guarantee that you’re going to be profitable in the long-term, even if that’s not the case right now. Show them you’re successful. To be more precise, prove that, with a little bit of money, you can get far ahead.
Put in a nutshell, these are the things you need to include in your venture capital proposal:
- Executive summary
- Company summary
- Facilities
- Industry analysis
- Target market
- Products and services
Your business proposal shouldn’t be similar to others you’ve written. Customize it and understand that every undertaking is unique. The proposal can range in length from 5 to 25 pages. Save it as a PDF. Rather than printing your document, fixing the content, rearranging, and scanning again, you should better combine your PDF pages. There are tons of resources available online for merging PDF documents. Click here and see for yourself. If you have appendices or other materials that need to be attached, combine multiple files into one proposal for electronic submission.
Talk business: Negotiate a good deal
If the VC investors like your proposals, they’ll ask for a pitch session. The meeting is an opportunity to get to know you and find out more about your company. You should anticipate their questions and prepare your answers well in advance. Most importantly, be ready to negotiate. It goes without saying that nobody will accept the terms of what you’ve just proposed without negotiating. A VC firm may require you to meet with one of their portfolio companies in the same space to get a point of view. It’s not in your best interest to share your plans with someone that’s too close to your business. Let the organization know that.
The VCs won’t pay more than what they believe your venture is worth. Even so, don’t name a low valuation believing that you have no negotiating power whatsoever. You should let the market set the price. It’s the best way to handle a situation of this kind. If the offer happens to be less than what you expected, keep calm and inform the VC firm the offer is too low. You could mention that you’re currently discussing with other firms. It’s not a good idea to drag the fundraising process too long in hopes of getting more. A week is enough to review your options and decide what to do.